Travelers 2013 Annual Report Download - page 67

of which could be adversely impacted by further declines in real estate valuations and/or financial
market disruption.
We also invest a portion of our assets in equity securities, private equity limited partnerships,
hedge funds and real estate partnerships. From time to time, we may also invest in other types of
non-fixed maturity investments, including commodities. All of these asset classes are subject to greater
volatility in their investment returns than fixed maturity investments. General economic conditions,
changes in applicable tax laws and many other factors beyond our control can adversely affect the value
of our non-fixed maturity investments and the realization of net investment income, and/or result in
realized investment losses. As a result of these factors, we may realize reduced returns on these
investments, incur losses on sales of these investments and be required to write down the value of these
investments, which could reduce our net investment income and result in realized investment losses.
From time to time, the Company enters into short positions in U.S. Treasury futures contracts to
manage the duration of its fixed maturity portfolio. Although the use of U.S. Treasury futures contracts
in 2013 resulted in realized investment gains, U.S. Treasury futures contracts can also result in realized
investment losses.
Our investment portfolio is also subject to increased valuation uncertainties when investment
markets are illiquid. The valuation of investments is more subjective when markets are illiquid, thereby
increasing the risk that the estimated fair value (i.e., the carrying amount) of the portion of the
investment portfolio that is carried at fair value as reflected in our financial statements is not reflective
of prices at which actual transactions could occur.
Given that economic and market conditions are highly uncertain, we may, depending on
circumstances in the future, make changes to the mix of investments in our investment portfolio. These
changes may impact the duration, volatility and risk of our investment portfolio.
Because of the risks set forth above, the value of our investment portfolio could decrease, we
could experience reduced net investment income and we could experience realized and/or unrealized
investment losses, which could materially and adversely affect our results of operations, financial
position and/or liquidity.
Our business could be harmed because of our potential exposure to asbestos and environmental
claims and related litigation.
With regard to asbestos claims, we have received and continue to receive a significant number of
asbestos claims from policyholders (including others seeking coverage under a policy). Factors
underlying these claim filings include intensive advertising by lawyers seeking asbestos claimants and
the continued focus by plaintiffs on previously peripheral defendants. The focus on these defendants is
primarily the result of the number of traditional asbestos defendants who have sought bankruptcy
protection in previous years. The bankruptcy of many traditional defendants has prompted plaintiffs to
aggressively seek out potential new defendants and has caused increased settlement demands against
those policyholders who are not in bankruptcy but who remain in the tort system. Currently, in many
jurisdictions, those who allege very serious injury and who can present credible medical evidence of
their injuries are receiving priority trial settings in the courts, while those who have not shown any
credible disease manifestation are having their hearing dates delayed or placed on an inactive docket.
This trend of prioritizing claims involving credible evidence of injuries, along with the focus on
previously peripheral defendants, contributes to the claims and claim adjustment expense payments we
experienced.
We also continue to be involved in coverage litigation concerning a number of policyholders, some
of whom have filed for bankruptcy, who in some instances have asserted that all or a portion of their
asbestos-related claims are not subject to aggregate limits on coverage. In these instances, policyholders
also may assert that each individual bodily injury claim should be treated as a separate occurrence
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